Oil cos’ marketing margins may face West Asia heat
An escalation in West Asia could ignite crude oil prices and hurt marketing margins of India’s oil marketing companies (OMC), given their limited space to raise fuel prices in an election season. With crude prices crossing $90 per barrel last week and fears that it could go beyond $100 if the conflict flares up, concerns have grown in the energy market.
High oil prices and little likelihood of higher retail prices will squeeze the marketing margins of state-owned OMCs, experts said. Marketing margin is the difference between the cost of the refined product, say petrol or diesel, and the retail sale price.
“Although the situation has not escalated so far, in case there is a major disruption on the Strait of Hormuz, even $100 per barrel looks less. Prices may surge further as the Strait handles transport of about 25% of the global oil consumption. And a surge in crude price is negative for OMCs. Marketing margin on sale of diesel is hardly about a rupee and that on petrol is around ₹5 per litre,” said Swarnendu Bhushan, co-head of research at Prabhudas Lilladher Pvt. Ltd.
Shares of OMCs have been volatile over the past week; however, in the last one month, they have seen an uptrend. IOCL shares have increased about 5% to ₹169.05, while those of BPCL and HPCL increased nearly 2% to ₹592.65 and ₹469 respectively.
“The under-recovery on diesel is about a rupee, while in the case of petrol, they making handsome profits of about ₹3.2 per litre. However, if crude prices surge, OMCs may return to under-recoveries in petrol sales,” Bhushan added. Under-recovery is the notional loss or difference between the retail price of the fuel and the international price.
An increase of $1 per barrel of crude necessitates a 50 paise increase in petrol price, Bhushan said, adding in case of a $6 increase, OMCs may witness under-recoveries.
Prashant Vasisht, senior